Repercussions of flipping from BTL to Residential mortgage

by Readers Question

8:29 AM, 27th January 2017
About 2 years ago

Repercussions of flipping from BTL to Residential mortgage

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Repercussions of flipping from BTL to Residential mortgage

I would like to buy a house that I could let out, however if necessary I would be happy to live in it.FCA

Clearly it is a lot easier to get a Buy to Let mortgage, so I am thinking of going down this route.

If for any reason I struggle to let it out how easy is it to inform the lender that I want to switch it to a residential mortgage.

Would there be any problems in making this switch so, if for any reason I didn’t meet their residential lending criteria could they refuse the change, thereby forcing me to remain on a BTL.

Many thanks

David



Comments

Neil Patterson

8:45 AM, 27th January 2017
About 2 years ago

Hi David,

If it is your intention to live in the BTL property at any point in the future or have a close relative live in the property or it was not your original business intention to invest in property ( accidental landlord) then this is deemed a "Consumer" BTL by the FCA. The old word for this was "Regulated" BTL

There are fewer lenders that will do a Consumer BTL as the regulation and paperwork required is much stricter like a residential mortgage, but there are options.

In this scenario I would suggest it is your intention to live in the property or not a pure business investment and if not declared as such and you changed your mind quickly then the Broker could be punished by the FCA and or the lender may require you to repay the mortgage.

Mark Alexander

11:22 AM, 27th January 2017
About 2 years ago

Hi David

If you purchase on a BTL basis then decide to occupy the property yourself without consent from your mortgage lender they would be well within their rights to demand repayment of your mortgage.

If you apply for consent to occupy the property your mortgage lender will almost certainly base any decision on your earnings and whether or not they would grant the same level of mortgage to you on a homeowner basis.

I concur with Neil's comments too.
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Onslow Clough

7:17 AM, 29th January 2017
About 2 years ago

I have no intention of doing anything fraudulent, I was just wondering what would happen if i asked to change mortgage.

If it turns out i can't rent out the property and it is just sitting there, it would make sense for me to move in. (I currently rent myself). What about if I did manage to rent it out for 6 months and then changed my mind about letting it out. (bad tenants, inconvenience etc)

As a fall back option is this viable? Is it realistic that the bank would call in the loan rather than find a way to make it work.?

H B

9:37 AM, 29th January 2017
About 2 years ago

Hi Neil

Many lenders will be suspicious of someone who wants to BTL if they do not own already, largely because of a suspicion that people are trying to get around MMR rules.

Could you get a mortgage on this property as an owner occupier? If you could, that would make the process easier. But it would still raise the question as to why you are getting a BTL property rather than owning to live in.

Also, you seem rather doubtful about whether you can let this property. Is there something wrong with it?

Neil Patterson

8:02 AM, 30th January 2017
About 2 years ago

Reply to the comment left by "Onslow Clough" at "29/01/2017 - 07:17":

You can still apply for a Consumer BTL, which is just a BTL with more regulation and protection.

From what you have said if I was still an IFA/Broker I would not be comfortable applying for anything other than a regulated consumer BTL mortgage.

Potentially living in the property is clearly on your mind.

Onslow Clough

19:22 PM, 30th January 2017
About 2 years ago

Reply to the comment left by "Neil Patterson" at "30/01/2017 - 08:02":

Living in the property is certainly on my mind but getting a residential mortgage would be be hard, getting a BTL mortgage would not. There is nothing wrong with the property and would certainly lend itself to an easy conversion into a 6 bedroom HMO. Perhaps I could rent it out for 6 months / 1 year and then request a change? I currently have a large portfolio of properties so i don't think it would be considered strange to purchase a BTL despite the fact that i am currently renting.

Mark Alexander

19:31 PM, 30th January 2017
About 2 years ago

Reply to the comment left by "Onslow Clough" at "30/01/2017 - 19:22":

How will you answer the question on the mortgage application form "Do you or any family member intend to live in the property at any time?"

If you decide to move in, will you request lender consent? If you do and it is declined what then? If you don't are you aware you would be in breach of contract and the prospect of the loan being called in and possibly being charged with mortgage fraud which has a maximum prison sentence of 14 years?

The choice is yours, just like driving past a school doing 100 mph at home time.
.

H B

19:37 PM, 30th January 2017
About 2 years ago

Reply to the comment left by "Onslow Clough" at "30/01/2017 - 19:22":

Your evidence of having a large portfolio might convince lenders that you are not trying to get around the rules. But if you subsequently move into the house you will need to meet the MMR rules - you will not be allowed to live in it with a BTL mortgage.

Also, the differences between owner occupier and BTL are not so great now. Most if the lenders have moved to 140% rental coverage and use a higher stress rate.

Onslow Clough

20:12 PM, 30th January 2017
About 2 years ago

Reply to the comment left by "Mark Alexander" at "30/01/2017 - 19:31":

This really is the gist of my question. I would of course ask permission but I was wondering what the response is likely to be. Would they refuse outright or would it be negotiable?

Mark Alexander

20:19 PM, 30th January 2017
About 2 years ago

Reply to the comment left by "Onslow Clough" at "30/01/2017 - 20:12":

As I said previously, they would base their decision on their residential lending criteria, as if you were taking out a new homeowner mortgage.
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